Surge in pension fund shareholdings

07/06/2004 10:00

The invested capital of pension funds rose by 55 billion euro in 2003, to 485 billion euro. Investment in shares rose by nearly 43 billion euro, that in other securities (bonds, house mortgages, private loans an other investments) by 12 billion euro.

Half of capital invested in shares

The shareholdings of pension funds rose by 43 billion euro in 2003, to more than 226 billion euro. This means that nearly half of invested capital of pension funds is invested in shares. Pension funds increased the their shareholdings by buying 23 billion euro worth of shares in 2003. An increase in share prices of 10 percent on an annual basis resulted in an additional increase of 19 billon euro.

Investment by pension funds, 2003

Investment by pension funds, 2003

Investment by pensions funds in bonds rose slightly in 2003: by nearly 5 billion euro to nearly 182 billion euro.

Long-term loans (house mortgages and private loans) fell from more than 30 billion euro in 2002 to just over 24 billion euro in 2003, mainly because parts of the portfolio were sold off.

Shareholdings in the last five years

The profits pension funds make on their shares are connected to an important extent with developments on the stock exchange. After the bull markets in the nineties of the last century, 1999 was the last year in which a substantial profit, 38 percent, was realised. In the subsequent three years losses were incurred on shares, reaching 25 percent in 2002.

2003 was a better year for pension funds. After a disappointing first quarter, with share losses of nearly 9 percent, shares started to yield profits again in the following three quarters. Pension funds made a net profit on shares of nearly 10 percent on average in 2003.

In the years 1999–2003 they incurred a net loss of 7 percent. The MSCI world index for shares fell by more than 12 percent in the same period.

In spite of this, the shareholding of pension funds increased from 152 billion euro (December 1998) to more than 226 billion euro (December 2003), as they bought 90 billion euro worth of shares.

Profits/losses on shares and MSCI world index

Profits/losses on shares and MSCI world index

More invested in shares and bonds

At the end of 2003 share and bonds accounted for the lion’s share of invested capital: 84 percent. At the end of 1994 this was still only 49 percent. The increase was caused by the substantial reduction of long-term loans. Investment in bonds rose from 26 percent (1994) to 37 percent (2003), that in shares from 23 percent to 47 percent in the same period. The percentage of long-term loans in the investment portfolios fell from 41 percent in 1994 to 5 percent in 2003.

Composition of total investment portfolio, 31 December

Composition of total investment portfolio, 31 December

Bart van Wezel